Letter of Credit and Its Operation Procedures in Banks
A term paper on
LETTER OF CREDIT AND ITS OPERATION PROCEDURES IN BANKS
Course code: FB-509
Course Title: Principles and Practices of Banking
SUBMITTED TO
Abdullah Al Mahmud
Lecturer
Department of Banking
Faculty of Business Studies
University of Dhaka
[Submitted for the partial fulfillment of the requirements of the degree in Master of Business Administration (Banking)]
PREPARED AND SUBMITTED BY
Md. Ataur Rahman ID: 50917063
Submission Date: July 22, 2010
University of Dhaka
Department of Banking
Chapter I INTRODUCTION
Letter of Credit (L/C) is a very important issue of foreign exchange management because without L/C import and export cannot be possible. Importer and Exporter do not know each other. For this reason settlement of payment cannot be possible without the arrangement of Bank particularly in foreign trade. Therefore import/Export also cannot be possible if no L/C can be made through Bank. So L/C is a very important issue in foreign trade.
L/C is a guarantee of a bank (Issuing Bank) on behalf of the importer in a trade in favor of the exporter to pay a certain sum of money under some specific terms and conditions.
So, an L/C is a negotiable instrument (A form of documentary credit) that carries a promise of payment with the fulfillment of certain conditions. An L/C can be used in foreign trade as well as for local payments.
While a letter of credit is issued for a guarantee in a specific transaction, a standby letter of credit is a general letter providing a guarantee for a specific period of time. Most letters of credit are irrevocable, but occasionally a letter of credit is revocable; that is, it can be canceled by the bank without notifying the beneficiary.
So it is very important for every business people and all concerned to know what the letter of credit is, how it works and how it helps in international trade. Keeping in mind the above stated fact the
LETTER OF CREDIT AND ITS OPERATION PROCEDURES IN BANKS
Course code: FB-509
Course Title: Principles and Practices of Banking
SUBMITTED TO
Abdullah Al Mahmud
Lecturer
Department of Banking
Faculty of Business Studies
University of Dhaka
[Submitted for the partial fulfillment of the requirements of the degree in Master of Business Administration (Banking)]
PREPARED AND SUBMITTED BY
Md. Ataur Rahman ID: 50917063
Submission Date: July 22, 2010
University of Dhaka
Department of Banking
Chapter I INTRODUCTION
Letter of Credit (L/C) is a very important issue of foreign exchange management because without L/C import and export cannot be possible. Importer and Exporter do not know each other. For this reason settlement of payment cannot be possible without the arrangement of Bank particularly in foreign trade. Therefore import/Export also cannot be possible if no L/C can be made through Bank. So L/C is a very important issue in foreign trade.
L/C is a guarantee of a bank (Issuing Bank) on behalf of the importer in a trade in favor of the exporter to pay a certain sum of money under some specific terms and conditions.
So, an L/C is a negotiable instrument (A form of documentary credit) that carries a promise of payment with the fulfillment of certain conditions. An L/C can be used in foreign trade as well as for local payments.
While a letter of credit is issued for a guarantee in a specific transaction, a standby letter of credit is a general letter providing a guarantee for a specific period of time. Most letters of credit are irrevocable, but occasionally a letter of credit is revocable; that is, it can be canceled by the bank without notifying the beneficiary.
So it is very important for every business people and all concerned to know what the letter of credit is, how it works and how it helps in international trade. Keeping in mind the above stated fact the
References: Chowdhury, L.R. 2006. A Textbook on Foreign Exchange. Second Edn. Paradise Printers, 44/C-1, Azimpur, Dhaka